The 2008/09 recession — what, how and why? In August 2007 an extraordinary thing occurred. Banks such as Natwest and Barclays stopped lending to each other. The ‘money markets’ seized up. The reason was not made public, but was simple. Such were the huge losses made on the US property market (due to sub-prime mortgages packaged as collateralised debt obligations) that UK banks no longer trusted each other’s balance sheets.
With the wholesale money market dead, one UK bank (Northern Rock) collapsed within a month. For the first time in more than a century, queues formed outside a UK bank, with customers desperate to get their money out. In other banking systems throughout the West, the same problems were occurring.
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